Understanding the ABC's of Lending

Understanding the ABC's of Lending

Posted by on Tuesday, February 5th, 2019 at 6:50pm.

When looking to buy a home and you think about financing, you probably want the best rate possible, Right?  Then it’s best if you understand your ABC’s of lending.  Typically potential Homebuyers turn to either the big banks, credit unions, or monoline lenders.  You will often hear these lenders called, “A” lenders.  If you’ve got good credit, a good job and a decent down payment, you are in luck. This will be most likely the path you travel down towards securing a mortgage for your new home.  However, there are some people who don’t fit this conventional mold, and here’s were you may hear the term, Alt A, or alternative lender. What is an alternative lender exactly? An Alternative lender is a mortgage company backed by investors offering mortage financing with different guidelines on credit and debt servicing and a focus on the property and exit plan.  Who do alternative lenders usually help and what can you expect? Many people nowadays are looking to alternative lenders if they have just come out of a bankruptcy, with bruised credit, or are self-employed. Hey! that’s great, there is someone out there willing to help me secure a mortgage!  But wait, typically borrowers will need to have a minimum of 20 to 25 per cent down, there will be applicable lender and broker fees and rates will be higher than conventional lenders. The good news is the rates may not be as high as you think.  Some of these Alt A lenders are offering one-year rates between 4.35 and 5.8 per cent. SO... an option for some of us may be to use an Alt A lender for a one year term and be the great stepping stone we need to get back into a conventional mortgage with the best discounted rate and no fees. Short term pain for long term gain.

Lets face it, the mortgage rules are getting tougher and now with the newly applied stress tests, more and more people are seeking out alternative lenders out of necessity. If someone has enough equity, there’s always a lender looking to assist you with your financing, but it will come with higher rates and fees.

If your situation more closely leans you towards an Alt A lender then have no fear.  There is help. As a real estate agent we work and refer you to the best qualified mortgage professional that can help understand your unique situation and recommend the best advice.  I’m here to help you get in touch with the right people and save you time.

 

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